San Diego Housing Commission workers are looking forward to the day they can walk out of their aging, cramped quarters for good and move into a brand-new downtown office tower tailor-made for them.

LAURA EMBRY / Union-Tribune

The San Diego Housing Commission has sold its current office building to another city agency, the Centre City Development Corp., which plans to redevelop the site for housing.

Their new home is quickly taking shape at the corner of Park Boulevard and C Street, where a five-story office building is going up, along with a 20-story condo tower and underground parking for the workers and residents.

Efforts to relocate the commission date back more than four years, prompted by a growing staff and a building in need of costly repairs.

With a staff that has nearly doubled to 200 employees over the last two decades, the commission has had to lease two other office buildings, at an annual cost of $174,000, to accommodate everyone.

“We're excited that we all get to be in the same building, we'll have much greater efficiency, the air quality will be much better, we'll be accessible by public transportation, and people will be able to get to us more easily,” said Elizabeth Morris, chief executive officer of the Housing Commission.

While technically located downtown, the current offices are on the very edge of Barrio Logan.

“Our offices are crowded in some areas, the floor plan and work flow are terribly inefficient, the lighting and air conditioning and electrical systems are so fragile that they don't work well. Virtually every system needs to be redone, and it was determined to not be worth the investment to repair it.”

The move, however, will still require a sizable investment on the part of the commission. It is purchasing the new office tower from developer Lankford and Associates for nearly $24 million, but total costs bring the outlay to $26.5 million.

To finance the purchase, the commission is taking out a long-term loan, with annual payments expected to average $1.7 million, according to Carol Vaughn, the commission's executive vice president and chief operating officer.

To help pay the mortgage, two of the three floors in the building will be leased out, generating an estimated $1.1 million in rental income to the commission the first year. That assumes both floors are completely rented in year one. Lease income is expected to increase over time, with anticipated revenue going up to $1.3 million by year five, according to a financial analysis.

The commission has a $2 million reserve to protect it in case lease revenues are not fully realized the first year.

Brokers are currently working on finding tenants, but because nothing is definite yet, they can't reveal possible office and retail users. For the ground-floor retail space, tenants will likely be businesses that cater to residents and office workers, such as various types of eateries, dry cleaners, hair salons and apparel stores, said Reg Kobzi, a senior vice president with CB Richard Ellis, which is helping the commission market the first-floor space.

“We have lots of food interest,” said Kobzi. “We have the benefit of City College next door and the trolley line going through, so you have office-based customers, transit customers and college students.”

The office space isn't quite as easy to fill, especially with a restriction that the second floor be leased primarily to nonprofit and governmental organizations.

“It's got a great visual image, and with the trolley going right through, it'll certainly be a well-trafficked area,” said broker Craig Kristofferson of CB Richard Ellis. “We're very bullish about it. We're hopeful we'll have tenants in place by completion of the building, but right now we don't have any finalized deals.”

In order to make the Smart Corner office deal pencil out, the commission needed to sell its existing office building. Although the plan was to originally sell the facility to a developer who planned to build condos there, the deal fell through last year when some council members felt that the replacement housing should include a larger proportion of affordable units.

“I found it a little ironic that the agency that's supposed to be providing affordable housing for the people of San Diego was instead suggesting that the site be sold off for high-priced market-rate housing,” said Councilman Jim Madaffer, who at the time was the most vocal about the planned sale of the office building.

“What I urged then and still urge to this day is that a major component of the site should have affordable housing.”

Ultimately, the Centre City Development Corp. saved the day by agreeing to purchase the site and work with the surrounding communities to come up with a plan that will include affordable housing. The actual purchase will take place later this year.

Community forums will be held during the summer to solicit ideas for what to build on the site.

Councilman Ben Hueso, whose district includes Barrio Logan, said he would like to see a combination of market-rate condos and affordable for-sale condos. The community already has a fair number of low-income rentals and needs more lower-cost homeownership opportunities, Hueso said.

Morris emphasizes that when the Housing Commission was looking to sell its existing building, the key objective was to get a good offer so it could afford to purchase the Smart Corner building, Morris explained.

“It wasn't meant to be a housing resource,” she explained. “The more we got out of the existing building, the less we had to borrow for the new building. If there had been (more) affordability requirements in the purchase, our sales price would have been less, so we wouldn't meet the goal of that transaction.

“What's good is the building is coming in on time, and our purchase price was locked in, so even though the cost of construction materials has been increasing, we're insulated from that. So it looks like a pretty favorable transaction for us.”